The impact of student debt is becoming tougher as programs and post-graduate expectations change.
While many Canadians think of crippling student debt as a distinctly American issue, one in six insolvencies in Canada today involves student debt. Furthermore, people are declaring bankruptcy younger than ever and a third of people with student debt insolvency are between the ages of 18 and 29.
HOW STUDENT DEBT HAS CHANGED
The main reason students are facing more debt is that while tuition and the cost of living are constantly rising, entry-level jobs are harder to come by and salaries have remained mostly stagnant. In addition, the recent cuts to the Ontario Student Assistance Program (OSAP) means that Ontario students are struggling to make ends meet during the school year. Once they leave school, recent graduates often end up taking unpaid internships, part-time positions or minimum wage jobs. These types of positions make it difficult to pay rent and bills, let alone pay down student loans debts. This difficulty finding well-paying work means that young people turn to credit cards and lines of credit to make ends meet, exponentially increasing their debt.
HOW TO PAY YOUR STUDENT DEBT
It now takes the average graduate nine to 15 years to pay off their student debt, if they do at all. Some student loan programs expect people to start making payments as soon as they graduate, while others offer a six-month grace period. However, the payments they’re expected to make on default repayment programs are often unaffordable on an entry-level or minimum wage job.
Many graduates are turning to the Canadian government’s Repayment Assistance Program (RAP), which allows them to make payments of no more than 20 per cent of their salary. Furthermore, until one is making $25,000 per year, they don’t have to make any payments at all.
FINDING RELIEF FROM STUDENT DEBT
Bankruptcy or consumer proposals can help relieve some forms of student debt. Canada’s Bankruptcy and Insolvency Act excludes government guaranteed student loans that are less than seven years old. This means that if you’ve received financial aid from the government in the past seven years and wish to declare bankruptcy, you will still be obligated to pay the loans. Student loans from private institutions, such as banks, and government student loans that are more than seven years old may be included in a bankruptcy or consumer proposal.
NEED HELP GETTING A HANDLE ON YOUR STUDENT LOANS?
If you’re tired of struggling with your student debt, D. & A. MacLeod Company can help. Contact us today for a free consultation and for personalized, professional guidance to get you back on the path to your new beginning.